Courtesy TheMarkNews.com

Every year at budget time, we hear tales of woe from the City of Toronto. How will they make up the deficit that runs into the hundreds of millions of dollars? What services are going to be cut? How large will the tax increase be? And, every year, the city pulls through with the help of a handout from the provincial government, by raiding its reserves, and by instituting modest property tax increases. This is not sustainable. In the face of its own mounting deficit, the provincial government is unlikely to continue providing bailouts to the city, reserves will eventually run out, and property tax increases are very unpopular.

What can the city do? Simply stated, it has to find a way to increase its revenues, reduce its expenditures, or both.

How much more can the city raise property taxes? Business taxes are already much higher than residential taxes in Toronto and business taxes in the rest of the GTA. The city has rightly been trying to reduce this burden. Residential property taxes can be increased but that is always a difficult choice politically because the property tax is very visible (not deducted at source like the income tax or collected in small amounts on each purchase like the sales tax). While the visibility makes the city accountable, it also makes it difficult to increase the tax.

The city can continue to raise additional revenues under the new City of Toronto Act. It has already imposed a land transfer tax, a vehicle registration tax, and a billboard tax. But, at the end of the day, these taxes bring in a small amount of revenue, considering the city’s $9 billion budget.

It might be time for something more substantial, such as the province allowing the city to piggyback onto the income tax or the new harmonized sales tax. Local autonomy and accountability demands that the city set its own rate for these taxes: those who make the expenditures should raise the revenues to pay for them.

Certainly there will be problems to be worked out with such a plan. One question mark is what will happen on the borders of the city. Maybe the tax needs to be levied on a regional basis or maybe there are other ways of getting around the problem. Maybe the problem isn’t even as big as some people think.

At the very least, we need to start the discussion around other revenue tools rather than dismissing them out of hand. Some cities in the U.S. and Europe have income and sales taxes, so these obstacles have been overcome elsewhere.

Finally, the city needs to price services correctly, not only to raise revenues, but also to ensure that services are delivered efficiently. When people know the costs of services and have to pay them, they can make much better decisions on how much to consume than if they are being subsidized by someone else. One of the positive outcomes of Walkerton was better pricing of water. Perhaps the increasing costs of traffic congestion and pollution will eventually lead to the use of tolls in the region.

On the expenditure side, the city needs to consider other ways of delivering services. While this does not necessarily mean privatization, it does mean that the city needs to introduce an element of competition in service delivery. In a number of U.S. jurisdictions, unions compete successfully with the private sector and even other municipalities to provide services such as garbage collection. Such competition would keep costs down.

The city can also choose to cut services, although it needs to be strategic about this. The city needs to determine which services are most important to achieve its objectives (such as those set out in the [Agenda for Prosperity](http://www.toronto.ca/prosperity/index.htm)) and continue to invest in them.

It is time for the city to take control of its own destiny. It cannot rely on other levels of government whose transfers are unpredictable and distort local decision-making. It needs to ask people what services they want and tell them how much they are going to cost. People can then decide if they are willing to pay for those services or not.

A world-class city requires high-quality services, and high-quality services require adequate funding. The choice is ours.

The Mark is Canada's online forum for news commentary and analysis.

Photo credit: Flickr user M Kuhn. Used under a Creative Commons license.